COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM
His Honour Roger Connor DL
7 MK 00900
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE STANLEY BURNTON
LORD JUSTICE GROSS
| Sykes & Anr
|- and -
|Packham T/A Bathroom Specialist
Mr Robert Christie (instructed by Austin Ray) for the Respondent
Hearing dates : 01/02/2011
Crown Copyright ©
LORD JUSTICE GROSS:
i) The Judge erred in rejecting the Appellants' case that this was a fixed price contract (plus extras).
ii) Having rejected the Respondent's case that this was a "cost plus" contract, the Judge erred in finding that the Respondent was entitled to recover on a quantum meruit; instead, the Judge should either have dismissed the claim or given the Appellants an opportunity to call evidence as regards the "reasonable price" and to make submissions in this regard before judgment.
iii) There was insufficient evidence to support the Judge's findings as regards what was in fact a reasonable price for the works.
i) Essentially, a suggested arithmetical error in the judgment; if this ground is well-founded, the Respondent should have been awarded the principal sum of £30,506.70 (instead of £25,910.72) plus interest in the amount of £9,746.12 (rather than £8,282.80).
ii) A submission that if the Judge was wrong to hold that this was a contract for a reasonable price, he should have held that it was a cost plus contract, as originally alleged by the Respondent.
i) The true nature of the agreement ("Issue (I)")?
ii) What should the Judge have done ("Issue (II)")?
iii) A reasonable price ("Issue (III)")?
iv) An arithmetical error ("Issue (IV")?
" 54. ….having regard to the round figures given and the terminology used in the estimate, no reasonable person reading the estimate could…have thought that the Claimant was offering to supply the goods in question for a fixed price, notwithstanding the passage referring to changes in manufacturers' list prices……
55. As to whether the decision of the Defendants to instruct the Claimant to do the work gave rise to an agreement to provide the necessary labour for a fixed price, or a contract upon some other basis I, again, conclude that no reasonable person, reading the oft repeated phrase, 'Approximate labour and expenses costs' would have concluded that the Claimant was offering to provide the labour required for a fixed price. I am reinforced in that view by the evidence of the Claimant that the Defendants had asked him to provide a quotation and he told them that he was unable to do so…..If, as I accept, the Defendants asked the Claimant for a quotation and were told that he could only provide an estimate, it is simply not credible that they believed that, by his estimate, he was offering to carry out the works for a fixed price.
56. On the other hand, I cannot read into the words used in the estimate or, indeed, any other part of the evidence, any basis for concluding….that the Defendants agreed to pay for the works upon …..a form of costs plus contract. There is simply no evidence that that is what was agreed and there is no basis upon which I could conclude that such an agreement is to be inferred. Conspicuously, there is no evidence as to what the 'plus' would be. In the absence of an express agreement as to how the price of the works was to be ascertained, I conclude that there was an implied agreement that the price to be paid would be a reasonable price for the work to be done and the materials to be supplied, as would also be the case in respect of the additional works, no other means of ascertaining the price having been agreed…
58. Evidence to assist me in determining the amount of a reasonable price in this case is by no means abundant. I do, of course, have the experts' report giving me figures in respect of their valuation of the additional works. However……that evidence is of limited value because the experts had no means of assessing the amount of time wasted due to the presence of other trades or the amount of additional work resulting from changes in instructions given by the Defendants. I perceive that my duty, in those circumstances, is to seek to assess what would have been a reasonable price, doing the best I can. There must, inevitably, be an element of rough justice in this process. (I could, of course, decline to make this finding and adjourn the case for further enquiry. However, this would, in my view, be incompatible with the requirements of the overriding objective set out in part 1.1 of the Civil Procedure Rules, particularly having regard to the lack of proportionality between the costs involved and the sums remaining in issue and the further delay that would result.) "
i) Wages: Having regard to (a) the submission of the Appellants that some of the time of the Respondent's employees had been wasted and (b) the burden of proof resting on the Respondent, the Judge awarded the Respondent 80% of the sum claimed; a reasonable charge thus amounted to £17,200.
ii) A notional wage for the Respondent: Here the Judge awarded the Respondent a daily rate of £177, a figure which included an allowance for the Respondent's own tax liability. Utilising this daily rate and allowing the Respondent 100% of his hours, the total sum under this heading was £14,867.
iii) Sub-contractors: The sums claimed by the Respondent under this heading were recorded by the Judge as amounting to £10,646.87 plus some £2,956.97 in respect of "CIS Tax" – according to the Judgment, tax payable under HMRC's "Construction Industry Scheme". The Judge held that the Respondent had either paid or accepted liability for the sums in question and awarded £13,603.86 as a reasonable price.
iv) Materials, tools and equipment, items supplied: The Judge rejected the Appellants' submission that the Respondent was restricted to the amounts he had paid for the items in question. Instead, the Judge treated the amount paid by the Respondent for such items as the "base figure" for the assessment of a reasonable price. The difference between the price thus paid and the price charged by the contractor to the customer would be part of his profit. Doing the best he could, the Judge ruled that the base figure was £28,255.45.
v) Profit margin: The Judge next turned to decide upon an "appropriate profit margin". There was, as he observed, a "paucity of evidence"; again, the Judge rejected the option of adjourning for further evidence or an inquiry - such a course would "involve disproportionate cost and undue (and, in the circumstances of this case, particularly unfortunate) delay". The Judge held as follows (at  of the judgment):
" I propose to apply what seem to me to be modest profit margins to these items, with the exception of the figure for the Claimant's own labour [which of course already contained a profit element]. In respect of the remaining items, I will add a margin of 25% to the wages paid to the Claimant's employees, 15% to the sums paid ……for items purchased and 20% to the sums paid to sub-contractors…….this produces a figure somewhat lower than the amount that was claimed. The inference to be drawn is not that the amount claimed was excessive but that, in the absence of evidence in this respect, I have felt compelled to allow smaller margins of profit than might have been appropriate. "
|80% of wages||£17,200.00|
|25% on wages||£ 4,300.00|
|15% on purchases||£ 4,238.32|
|20% on sub-contractors||£ 2,720.77|
|Add VAT @ 17.5%||£14,907.44|
|Less paid by Defendants||£ 68,280.88|
|Amount allowed on the claim||£31,811.96|
|Sum allowed on counterclaim||£ 6,207.25|
ISSUE (I): THE TRUE NATURE OF THE AGREEMENT?
"…revised estimate of cost to partially refurnish the interior of your future home as your specification and choice of equipment."
The estimate went on to describe, at least in general terms, the substantial works to be done; bathroom equipment was to be supplied and fitted "as individual room design and final specification". When dealing with bathrooms, the estimate gave a "general specification". When giving a room by room breakdown, the estimate spoke throughout of "approximate materials and equipment costs" and "approximate labour and expenses costs". For each room, an "estimated total" was given.
" Request payment of VAT (£13,230.00) as deposit at Approval.
Payment of materials (£34,420.00) at commencement.
Balance (£41,180.00) on completion
Any extra works requested, may be subject to extra costs.
Proposed start date during week commencing: 4th July 2005
This Estimate is calculated on current retail prices for all materials and equipment, all fixing materials and sundry items.
Materials cost will be subject to any manufacturers price increases at time of installation.
Labour and expenses costs are for approximately 8 weeks working time…….
If this estimate is acceptable, please sign and return one copy so that we may finalise equipment to use and arrange a suitable start date. "
The total price of the works described in the estimate came to £88,830, including VAT.
" Clearly, that additional time must have been, at least in part, the result of the fact that the works to be done had become more extensive, the changes of instructions from the Defendants and the problems of access being restricted by the work of other trades."
In the event, the Respondent's work at the house came to an abrupt and acrimonious end on the 17th /18th November, 2005, for reasons rehearsed in detail in the judgment but which need not be recounted here.
i) As to context, the Judge found as a fact (judgment, at ) that, at the time of presenting the estimate, the Respondent did not have the final specification containing details of the bathroom equipment eventually ordered. While in theory it is not impossible that the Respondent contracted on the basis that he took the risk as to pricing of whatever specification the Appellants should ultimately decide upon, it is manifestly implausible that he should have done so.
ii) As to language, the Judge emphasised both the round figures contained in the estimate and the use of the wording "approximate materials and equipment costs" and "approximate labour and expenses costs". In my judgment, he was right to do so; objectively, no reasonable person reading the estimate could have thought, in the light of such wording, that it constituted a fixed price contract.
iii) There was, at least at first blush, some force in the Appellants' contention that the wording in the estimate, expressly dealing with a possible increase in the price of materials attributable to a rise in manufacturers' prices, conveyed the suggestion that in other respects this was a fixed price contract. Much the same point was made by reference to the wording in the estimate that extra works might be subject to extra costs. But, upon reflection, the submission as to a price increase carries very limited weight. These were not sophisticated parties entering into a complex agreement – circumstances in which the maxim expressio unius exclusio alterius might well signify a great deal. So far as extra works are concerned, it is difficult to see how they could fail to give rise to extra charges. In any event, even if and to the extent that this language pointed to a fixed price contract, it was comprehensively outweighed by the contrary indications from the context and language to which I have already referred.
iv) For completeness, the Judge observed (judgment, at ) that he was reinforced in his view by the Respondent's evidence that the Appellants had asked him to provide a quotation and that he had told them he was unable to do so. While I would not wish to say that the Judge – who heard the evidence – was wrong to draw comfort from these exchanges in the Respondent's oral evidence, I would be reluctant to base my conclusion on these passages and have not done so. The reason is that upon reading (and re-reading) the transcript of the Respondent's evidence on this topic, it remains unclear to me whether there indeed was a conversation to this effect between the Respondent and the Appellants; the relevant extracts of the transcript are capable of being confined to the Respondent's own view as to the distinction between an "estimate" and a "quotation", rather than reflecting a conversation between him and the Appellants; see, transcript for 18th and 19th September, 2009, at pp. 18-19 and 75-76. That said, my hesitation in this particular regard does not deter me from the conclusion to which I am otherwise attracted, namely, that this was not a fixed price contract.
v) As noted, the Appellants made some play with what the Respondent appears to have thought at the time of the presentation of the estimate, having regard to his witness statements. I shall assume (without deciding) in favour of the Appellants that what the Respondent subjectively thought would be relevant to determining the true nature of the estimate. But even on this assumption, it seems to me, with respect, that the Appellants have read far too much into the Respondent's witness statements. In agreement with the Judge, I do not think that the Respondent, either in his witness statements or his oral evidence, was saying anything more than that (as the Judge put it) "…he believed that he had accurately estimated the amount of labour required to do the job, if it went as expected". If that is right, as I think it is, then nothing said by the Respondent either assists the Appellants or undermines the conclusion arrived at by the Judge.
vi) This last point leads naturally to a conclusion as to the true nature of the estimate. In my judgment, the estimate here was intended as a reliable basis for the Respondent's calculations – see Keating on Construction Contracts (8th ed., 2006), at para. 2-008. As such, however, the estimate did not constitute a fixed price contract.
" In the absence of express agreement as to how the price of the works as to be ascertained, I conclude that there was an implied agreement that the price to be paid would be a reasonable price for the work to be done and the materials to be supplied, as would also be the case in respect of the additional works, no other means of ascertaining the price having been agreed."
ISSUE (II): WHAT SHOULD THE JUDGE HAVE DONE?
i) In a dispute of this nature, it would have been wholly disproportionate to have dismissed the claim by reason of the frailty of the Respondent's pleadings. Further, it would have been a pointless, though costly, exercise to require time to be taken while the Respondent amended its pleadings and the Appellants made consequential amendments.
ii) I am not persuaded as to the evidence which the Appellants would have called had the Judge taken the decision to adjourn. There is force in the Respondent's point as to the Appellants' failure to call evidence to deal with the claim for a reasonable price in respect of extras.
iii) More generally, as a matter of substance if not of strict pleadings, an element of reasonableness was necessarily part of the case or always likely to become such. By the close of pleadings, the case was not that far removed from a claim for a reasonable price.
iv) As it seems to me, the underlying object of the Appellants' submission in favour of an adjournment was not so much that it would enable evidence to be called but rather that it would result in the Respondent being put on terms with which he could not comply, so effectively bringing the claim to an end. As a matter of tactics, that is understandable – but it does not give rise to a claim of unfairness in the event of the Judge ruling against an adjournment.
v) Further, insofar as the Appellants contended that an adjournment would have been of no or little consequence to them, the contention is not necessarily well-founded. It assumes that all costs orders would necessarily have been adverse to the Respondent. However, had the case adjourned, thereafter resumed and had the Respondent then been successful, it can by no means be assumed that the Appellants would not have been on the receiving end of a substantial order for costs. While an initial order for costs thrown away would almost certainly have been made against the Respondent, subsequent costs orders may well have reflected success (and failure) on the resumed hearing.
vi) Satisfied as I am that the course followed by the Judge was not substantially unfair to the Appellants, I think the Judge was entitled to take the course he did. That another Judge may have reached a different decision is neither here nor there. This Court should support the decision taken by this Judge, in the exercise of his case management powers and doing practical justice. The downside of the alternative course of adjourning was manifest.
ISSUE (III): A REASONABLE PRICE?
" What one would normally expect in a contract of this sort is that any extra work would be charged at materials plus 20% plus labour….."
With this observation in mind, the uplift percentages which the Judge had awarded were hardly unreasonable.
i) I am not persuaded that the Judge erred as to the amount attributed to wages or as to the 80% figure adopted (to allow for some time being wasted, for which the Respondent was responsible).
ii) As to the Respondent's own "wages", i.e., the profit attributable to his own work, I can see no error whatever in taking his hours worked as the starting point or the daily rate which the Judge accepted. I am, however, troubled by the fact that 100% of the Respondent's hours have been allowed, in contradistinction to those of his labourers. Doing the best I can, I would reduce the sum awarded under this head, so as to allow 80% rather than 100% of those hours. The relevant figure to be awarded thus comes to £11,893.60 (rather than £14,867.00).
iii) I am not at all persuaded by the criticism levelled by the Appellants at the Judge's award for sub-contractors, with regard to CIS tax. The figure contained in the schedule therefore stands – but subject to Issue (IV) (see below).
iv) Subject only to the typographical error in the schedule (already discussed), I reject the Appellants' criticisms of the Judge's approach to the materials and the like purchased by the Respondent. To recap, the correct figure in the schedule for "Purchases" should be £28,481.91 (rather than £28,255.45).
v) Turning to the uplift (or profit margin) awarded on wages, purchases and sub-contractors, I am unable to accept the Appellants' complaints with regard to the margin in respect of purchases. The Respondent must have been entitled to an element of profit and, not least in the light of the suggestion in cross-examination already recorded (and wholly understandably aired by Mr. Hill), I do not think that 15% could realistically be categorised as an unreasonable margin. That figure should therefore remain unaltered. Indeed, with a view to dispelling any sense of injustice, it seems to me right, as a matter of rough justice, to adopt a 15% margin in respect of wages and sub-contractors as well – so, to such extent, reducing the 25% uplift on wages and the 20% uplift on sub-contractors. It may be that the Respondent could have justified higher percentage uplifts had he produced evidence directly addressing these matters; but he did not. In consequence of these reductions, the correct figure in the schedule for the uplift on wages should be £2,580.00 (rather than £4,300.00). I defer the re-calculation of the correct uplift figure for sub-contractors until I have dealt with Issue (IV).
ISSUE (IV): AN ARITHMETICAL ERROR?
LORD JUSTICE STANLEY BURNTON:
LORD JUSTICE KAY: